KYC Details of P-Note Holders Helps to Curb Black Money: Govt

The white paper on black money tabled by the Finance Minister says that, Investment in the Indian stock market by foreign investors through Participatory Note (P-Notes) routes back black money in the country generated by the Indians.

The key to check the flow of black money in India’s stock market is only the KYC (Know Your Customers) details of the ‘ultimate beneficiary’ of P-Note holders and not the middle entities (Foreign Institutional Investors) that have been issued these instruments.

The government said that, Participatory Notes (P-Notes) are derivative instruments for overseas entities to invest in Indian stock market. These are issued by foreign institutional investors against underlying Indian securities. The investment through P-Notes are not regulated by the Indian regulator – SEBI.

The equity experts says that, P-Notes go through multiple downward issuances, once issued by a Foreign Institutional investor (FII), make it difficult to track the ultimate holder or the ultimate beneficiary. This is because, P-Notes help keep the identity anonymous and can be freely traded and easily transferred without the disclosure of the actual beneficiaries. It also possible to hide the identity of the ultimate beneficiaries through multiple layers.

So, the white paper suggests to collect the KYC details of actual P-note holders. The idea to track black money coming through P-notes may not be fool proof unless KYC of ultimate beneficiary is done by an Foreign Institutional Investor. The Indian market regulator SEBI has been taking measures to ensure that these derivative instruments (P-Notes) are not used for black-money-laundering.